THE LAW ON PARTNERSHIP

NATURE AND CHARACTERISTICS

CONCEPT

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Concept of partnership – a partnership is a:• Contract• Association• Legal relation• Status arising out of a contract• Organization• Entity distinct and apart from its members• Joint undertaking to share in profit and loss

Characteristics/ elements of partnership:• Consensual – perfected by mere consent express or implied• Nominate – special name or designation in law• Bilateral – entered into by two or more persons and the rights and obligations are reciprocal• Onerous – benefit by giving something• Commutative – undertaking of each partner is considered as equivalent of the others• Principal – does not depend on its existence on other contracts• Preparatory – means to an end• A contract of Agency

Essential features of partnership:• There must be a valid contract• The parties must have legal capacity to enter into the contract• There must be mutual contribution of money, property, industry to a common fund• The object must be lawful

• The primary purpose must be to obtain profits and to divide the same among themselves• Articles of partnership must not be kept secret among the members otherwise there is no legal personality

Existence of a valid contract:• Partnership relation fundamentally contractual

o There is no such thing as partnership created by law or operation of law aloneo Form – oral or written, express or implied subject to the provisions of Art. 1771, 1773, and Statute of Frauds. Thus a member need not sign articles of co-partnership to become a member, election is sufficiento Articles of partnership – a written document embodying the terms of theassociation. It contains: the name, nature, purpose, location of the firm and defines the powers, rights, duties and liabilities of the partners among themselves, their contributions, the manner of which the profits and losses are to share and the procedure of dissolving the partnershipo Requisites as a contract: consent of at least 2 parties, object and cause which is established

• Partnership relation fiduciary in nature – voluntary association entered into by the associateso In general partnership there is the element of delectus personae (choice of the person/s that law gives such wide authority to one partner to bind another by contract or otherwise). Delectus personae allows one partner the power (not the right) to dissolve partnership

• Application of principles of estoppelo A partner holds himself out or permits himself to be held out as a partner in an enterprise in favour of third persons. Even if no real partnership exists, they are bound to third persons by their conduct

Same; Requisites for a Partnership to Have Juridical Personality; Since a contract of partnership is consensual, an oral contract of partnership is as good as a written one; Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership.—To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph. [Tocao vs. Court of Appeals, 342 SCRA 20(2000)]

ELEMENTS

Art. 1769. In determining whether a partnership exists, these rules shall apply:(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property;(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n)

Rules in determining existence of partnership:• Overview

o In general, all essential characteristics of a partnership must be present. Partners must expressly agree to contribute money, property, or industry as co-proprietors to carry on a business for profit, and to share the profitso An essential characteristic, by itself, does not prove the existence of a partnershipo In case of doubt, Art. 1769 would apply

• Test to determine the existence of partnershipo The terms of the contract would determine the legal nature of the contracto Legal intention is the crux of partnership – existence of a partnership not always

dependent upon the personal arrangement or understanding of the parties. Parties may call themselves partners, but their contract may be adjudged something different. On the other hand, parties may expressly stipulate that their contract is not a partnership yet it may still be considered a partnership based on the legal intention

• Incidents of partnershipo Share in the profits and losseso Equal rights in management and conduct of business (see Art. 1803)o Every partner is an agent of the partnership (Art. 1818)o All partners, except limited partners, are personally liable for partnership debts with their separate property (see Art. 1816)o There is a fiduciary relationship (see Art. 1807)o Partnership is not terminated upon dissolution. It continues until the winding up is completed (see Art. 1828)

• Presumption and burden of proofo Existence of partnership is not presumed. It must be provedo Persons who are acting as partners are presumed to have entered into a contract of partnership. The burden of proof is on the party denying its existenceo Once partnership is shown to exist, the presumption is that it continues in the absence of evidence to the contrary. The burden of proof is on the person claiming its termination

• Use of “partner”o Person asserting the existence of the partnership cannot prove it by just showing an agreement wherein the parties call themselves „partners . The use of the word „partners may be just for convenience and not necessarily to show the ‟ ‟intention to create a partnershipo „associate means „partner , but an employee may also be an „associate‟ ‟ ‟Persons not partners as to each other:

• Persons who are partners as between themselves are partners as to third persons. Consequently, persons who are not partners as to each other cannot be partners as to third persons• General rule: persons who are not partners as to each other cannot be partners as to third persons

Exception: if by their acts, consent, representations, third persons were led to believe that they are partners in a non-existing partnership

• Example: A and B are not partners. However, A, with the consent of B, told X that they are partners. So as to X, A and B are partners

Co-ownership or co-possession: • Intention to obtain profits

o In partnership, the profits must be derived from the operation of a business or undertaking and not merely from property ownership o There is no presumption of partnership between co-owners because there must be a clear intention to a partnership

• Existence of fiduciary relationship o There is no fiduciary relationship between co-owners o Persons may become co-owners without a contract. For example, by inheritance. But they cannot be partners without a contract

Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners.When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a)

Object or purpose of partnership:• The parties possess absolute freedom to choose the transactions they must engage in. the only limitation is that the object must be lawful and for the common benefit of the partners• Illegality of the object will not be presumed; it must appear to be of the essence of the relationship

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (1677)

Limitations upon the right to form a partnership – persons prohibited by law to give donations cannot enter into a universal partnership; each of the partners virtually makes a donation

Same; Contracts; Partnership; There are two essential elements in a contract of partnership: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.—Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. [Jarantilla, Jr. vs. Jarantilla, 636 SCRA 299(2010)]

LEGAL PERSONALITYArt. 1768. The partnership has a judicial personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph. (n)

Partnership, a juridical person• A partnership duly formed under the law is a juridical person to which the law grants a juridical personality separate and distinct. As an independent juridical person, a partnership may:

o Enter into contracts, acquire and possess property of all kinds in its nameo Incur obligationso Bring civil or criminal actions in conformity with the laws and regulations of its organizations

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a)

Form of partnership contract:• General rule

o No special form is required for the validity or existence of the contract of partnershipo The contract may be made orally or in writing regardless of the value of the contributions

• When immovable property or real rights are contributedo When read together, Articles 1771 and 1773 require the execution of a public instrument for the validity of a contract of partnership whenever immovable property is contributed theretoo To affect third persons, the transfer of real property to the partnership must be duly registered in the Registry of Property of the province or city where the property contributed is located

• When partnership agreement covered by the Statute of Fraudso An agreement to enter a partnership at a future time, which “by its terms is not to be performed within a year from the making thereof” is covered by the Statutes of Fraudso Such agreement is unenforceable unless the same be in writing or at least evidenced by some note or memorandum

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)

Registration of partnership • Partnership with capital of 3,000Php or more – requirements:

a) the contract must appear in a public instrument, and b) it must be recorded with the SEC o However, failure to comply with the above requirements does not prevent the formation of the partnership (Art. 1768) or affect its liability and that of the partners to third persons But any of the partners is granted the right by the law (Articles 1357 and 1358) to compel each other to execute the contract in a public instrument o This right cannot be availed of if the partnership is void under Art. 1773

• Purpose of registration – the requirement of public instrument of public instrument is imposed as a prerequisite to registration and registration is necessary as a condition for the issuance of licenses to engage in business or trade. In this way, the tax liabilities of big partnerships cannot be evaded and the public can also determine more accurately their membership and capital before dealing with them

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)

Partnership with contribution of immovable property • Where immovable property, regardless of its value, is contributed, the failure to comply with the following requirements will render the partnership contract void insofar as the contracting parties are concerned:

o The contract must be in a public instrument (Art. 1771) o An inventory of the property contributed must be made, signed by the parties, and attached to the public instrument

• With regard to third persons, a de facto partnership or partnership by estoppel may exist

When inventory is not required: • An inventory is required only “whenever immovable property is contributed” • Hence, Art. 1773 does not apply in the case of immovable property which may be possessed or even owned by the partnership but not contributed by any of the partners

• If personal property, aside from real property, is contributed, the inventory need not include the former

Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. (1669)

Secret partnerships without juridical personality • Associations whose articles or agreements are kept secret among the members and wherein anyone of them may contract in his own name with third persons are deprived of juridical personality for evidently, such associations are not partnerships • As among themselves, they shall be governed by the provisions relating to co-ownership • A member who transacts business for the secret partnership in his own name becomes personally bound to third persons unaware of the existence of such association

Actions; Civil Law; Partnership; Words and Phrases; A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.—A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses between them. A contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves. A joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is generally governed by the law on partnership. [Litonjua, Jr. vs. Litonjua, Sr., 477 SCRA 576(2005)]

DISTINCTION FROM OTHER BUSINESS RELATIONS AND ORGANIZATIONSArt. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)

Appraisal of goods or property contributed • Necessary to determine how much has been contributed by the partners • Two ways of appraisal: in the manner prescribed by the contract of partnership and in the absence of stipulation, by experts chosen by the partners and according to current prices

• For immovable property: appraisal is made in the inventory of said property

Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)

Commencement and term of partnership • Partnership is a consensual contract; hence it exists from the moment of the celebration of the contract by the partners (even when the partners have not yet begun the carrying on of its business or given their contributions)

o Predicated on the mutual desire and consent of the parties • In effect, its registration in the SEC is not an essential to give it juridical personality • No time limit prescribed by law for the life of partnership • The partners MAY stipulate some other date for the commencement of the partnership • A partnership in fact cannot be predicated on an agreement to enter into a co-partnership at a future day unless it is shown that such an agreement was actually consummated

Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. (n)

Partnership liability – partners are principals to the other partners and agents for them and the partnership. They are liable to third persons who have dealt with one of them in the same way that a principal is liable to third persons who have dealt with an agent General rule: a partner has the right to make all partners liable for contracts he makes for the partnership in the name and for the account of the partnership Individual liability – a partner may assume a separate undertaking in his name with a third party to perform a partnership contract or make himself solidarily liable on a partnership contract. In this case, he is personally liable even if the partnership derived benefits from it. Partners are liable to creditors (including industrial partners) for obligations contracted in the name and for the account of the partnership. Liabilities are pro-rata and subsidiary

• Pro-rata are the partnership assets have been exhausted: o Understood to mean equally or jointly and not proportionately which is its literal meaning. Based on the number of partners and not on the amount of their contributions to the common fund, subject to adjustment among the partners o If a partner has left the country, cannot increase the liability of the other partners

o Subsidiarily – partners are liable as guarantors of the partnership. When the assets of the partnership are exhausted, the private properties of the partners are liable o Industrial partners would also have to pay but may recover from the capitalist partner unless there is an agreement to the contrary

• Exception: o The industrial partner to pay losses relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liabilities of the partners to third persons. An industrial partner is not exempted from liability to third persons for the debts of the partnership

Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)Art. 1823. The partnership is bound to make good the loss:(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and(2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n)

The above 3 article provide for the SOLIDARY LIABILITY of the partners and the partnership to third persons • For the wrongful act or omission (Art. 1822) of a partner acting within the scope of the firm s business or with the authority ‟of his co-partners; or • Breach of trust (Art. 1823) of a partner acting within the scope of the firm s business or with the authority of his co-partners‟

Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801.(2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a) All partners considered managers and agents

• All partners shall then have equal rights in the management and conduct of partnership affairs. All of them shall be considered managers and agents (Art. 1818) • Consent here need not be express and may be presumed from the fact of knowledge of the alteration without interposing any objection

o Prohibition only applies to immovable property and the alteration thereof must be important Any important alteration in the immovable property of the partnership is an act of strict dominion Even managing partner cannot make such alteration, notwithstanding that it is useful to the partnership, without the consent of all partners o If refusal to give consent is manifestly prejudicial to interest of the partnership, court intervention may be sought Consent may be presumed from silence of other partners who did not oppose to alteration o If the alteration is necessary for the preservation of the property, it would seem that the consent of the other partners is not required

Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696)

Contract of sub-partnership • Sub-partnership – a partner may associate another person with him in his share without the consent of the other partners

Nature: • Partnership formed between a member of a partnership and a 3rd person for a division of the profits coming to him from the partnership enterprise • A partnership within a partnership and is distinct and separate from the main or principal partnership

Right of person associated with partners share • Sub-partnership agreements do not affect composition, existence or operation of the firm • Sub-partners are partners inter se, but in absence of mutual assents of all partners,

Partnerships; Words and Phrases; In order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property or industry to a common fund, and (2) they intended to divide the profits among themselves.—The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where: x x x two or more persons bind themselves to contribute money,

property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2) when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership. [Heirs of Tan Eng Kee vs. Court of Appeals, 341 SCRA 740(2000)]

CREATION AND DURATION

Civil law; Partnership; How partnership may be constituted.—A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary (Art. 1771, Civil Code). A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties, and attached to the public instrument (Art. 1773, Id.). [Agad vs. Mabato, 23 SCRA 1223(1968)]

FIRM NAMEArt. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. (n)

Firm name – name, title or style under which a company transacts business • Importance – necessary to distinguish the partnership which has a distinct and separate juridical personality from the individuals composing the partnership and from other partnerships and entities • General rule: partners may adopt any firm name desired. May be last names of the partners or even fictitious or fanciful names. Signature in the firm name is in law the signature of all the partners • Use of misleading name – partners cannot use a name that is “identical of deceptively confusingly similar to that of any existing partnership or corporation or to any name already protected by law or is patently deceptive, confusing or contrary to existing laws

Use of name of deceased partners • General rule: Supreme Court says partnership CANNOT use name of deceased partners • Exception: permissible provided that the firm indicates in all its communications that said partner is deceased

Persons who, not being a partner, include their name in the firm name do not acquire the rights of a partner, but they shall be liable as a partner insofar as third parties without notice are concerned. BY ESTOPPEL.

Art. 1846. The surname of a limited partner shall not appear in the partnership name unless:(1) It is also the surname of a general partner, or(2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared.A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.

Effect where the surname of the limited partner appears in the partnership name • The limited partner violating this article is liable, as a general rule, to partnership creditors, without, however, the rights of a general partner with respect to third persons with actual knowledge that he is only a limited partner

KINDS OF PARTNERSHIPUNIVERSAL v PARTICULAR Art. 1776. As to its object, a partnership is either universal or particular.As regards the liability of the partners, a partnership may be general or limited. (1671a)

Classification of partnership: • As to the extent of its subject matter

o Universal partnership or one which refers to all the present property or to all profits

There are 2 kinds of universal partnership • Universal partnership of all present property (Art. 1778) • Universal partnership of profits (Art. 1780)

o Particular partnership (Art. 1783)

• As to liability of the partners o General partnership – one consisting of general partners who are liable pro rata and subsidiarily liable (Art. 1822-1824) with their separate property for partnership debts o Limited partnership – one formed by 2 or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership (Art. 1843)

As to its duration o Partnership at will – one in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated at anytime by mutual agreement of the partners, or by will of any one partner alone; or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term or particular undertaking without express agreement (Art. 1785) o Partnership with a fixed term – one in which the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion of the particular enterprise, the partnership is dissolved, unless continued by the partners (Art. 1785)

• As to legality of its existence o De jure partnership – one which has complied with all the legal requirements for its establishment o De facto partnership – one which has failed to comply with all the legal requirements for its establishment

• As to representation to others o Ordinary or real partnership – one which actually exists among the partners and also as to third persons o Ostensible partnership or partnership by estoppel – one which in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence

• As to publicity o Secret partnership – one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners o Open or notorious partnership – one whose existence is avowed or made known to the public by the members of the firm

• As to purpose o Commercial or trading partnership – one formed for the transaction of business o Professional or non-trading partnership – one formed for the exercise of a profession

Class of partners – partners are classified according to their interest in the partnership business, or their obligations to the partnership, or liabilities to third persons

Art. 1777. A universal partnership may refer to all the present property or to all the profits. (1672)Universal partner – either present property or all the profitsArt. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)

Partnership of all present property • Partners contribute all the property which actually belongs to them to a common fund • There is an intention to divide the property among themselves • There is an intention to divide the profits they may acquire

Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith.A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a)

Universal partnership of all present • Comprises all that the partners may acquire by their industry or work during the existence of the partnership • The following become the common property of all partners: o Property which belonged to each of them at the time of the constitution of the partnership o Profits which they may acquire from the property contributed

Future properties cannot be contributed • The very essence of partnership requires the contribution of things determinate

Property subsequently acquired by inheritance, legacy or donation CANNOT be included by stipulation except the fruits

Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.

Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675)

Universal partnership of profits • Ownership of present and future property

o What passes to the partnership are the profits or income • Profits acquired through chance not included • Fruits of property subsequently acquired not included (unless stipulated)

Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (1676)

Presumption in favour of universal partnership of profits • A universal partnership of property imposes less obligations on the partners, since they preserve the ownership of their separate property • Applies only when a universal partnership has been organized

Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (1677)

Limitations upon the right to form a partnership – persons prohibited by law to give donations cannot enter into a universal partnership; each of the partners virtually makes a donationArt. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678)Object of particular partnership • Difference between a universal partnership and a particular partnership

o Scope of subject matter Universal: vague and indefinite, with a degree of continuity;

Particular: well-defined, confined to an undertaking of a single, temporary or ad hoc nature • Business need not be continuing in nature

o An agreement to undertake a particular piece of work or a single transaction and immediately divide the profits within the meaning of partnership as used in law

o Joint venture: though not a formal partnership, it is governed by almost the same rules of partnership There is a community of interest similar to a partnership Has a legal personality separate and district from the parties

Partnership; Where respondent company in the case at bar is considered a particular partnership and not universal.—The respondent company was not a universal partnership, but a particular one. As appears f rom Articles 1674 and 1675 of the Spanish Civil Code of 1889 (law in force when firm organized in 1947), a universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else “all that the partners may acquire by their industry or work during the existence of the partnership.” Respondent company was not such a universal partnership, since the contributions of the partners were fixed sums of money and neither one of them was an industrial partner. It follows that respondent company was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. [Commissioner of Internal Revenue vs. Suter, 27 SCRA 152(1969)]

AS TO LIABILITY OF PARTNERS: GENERAL v LIMITED

Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. (n)

Partnership liability – partners are principals to the other partners and agents for them and the partnership. They are liable to third persons who have dealt with one of them in the same way that a principal is liable to third persons who have dealt with an agent General rule: a partner has the right to make all partners liable for contracts he makes for the partnership in the name and for the account of the partnership Individual liability – a partner may assume a separate undertaking in his name with a third party to perform a partnership contract or make himself solidarily liable on a partnership contract. In this case, he is personally liable even if the partnership derived benefits from it. Partners are liable to creditors (including industrial partners) for obligations contracted in the name and for the account of the partnership. Liabilities are pro-rata and subsidiary • Pro-rata are the partnership assets have been exhausted:

o Understood to mean equally or jointly and not proportionately which is its literal meaning. Based on the number of partners and not on the amount of their contributions to the common fund, subject to adjustment among the partners o If a partner has left the country, cannot increase the liability of the other partners

o Subsidiarily – partners are liable as guarantors of the partnership. When the assets of the partnership are exhausted, the private properties of the partners are liable o Industrial partners would also have to pay but may recover from the capitalist partner unless there is an agreement to the contrary

• Exception: o The industrial partner to pay losses relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liabilities of the partners to third persons. An industrial partner is not exempted from liability to third persons for the debts of the partnership

AS TO DURATION: FIXE D TERM, PARTICULAR UNDERTAKING and at WILL

Commercial Law; Partnership; A partnership that does not fix its term is a partnership at will.—A partnership that does not fix its term is a partnership at will. That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter.Same; Same; The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.—The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. [Ortega vs. Court of Appeals, 245 SCRA 529(1995)]

PARTNERSHIP BY ESTOPPELArt. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)

Meaning and effect of estoppel • Estoppel is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or misrepresentation, either express or implied • Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disapproved as against the person relying thereon

When a person a partner by estoppel • Persons who are not partners as to each other are not partners as to third persons (Art. 1709[1]) • No one can be held liable nor claim rights as a partner unless he has given his consent to become such. An exception to this rule is provided by Art. 1825. due to the doctrine of estoppel, one may become liable as a partner even though he is not a partner in fact • A person not a partner may become a partner by estoppel and thus be held liable to third persons as if he were a partner, when by words or by conduct he:

o Directly represents to anyone as a partner in an existing partnership or in a non-existing partnership (with one or more persons not actually partners); or o Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership

• In other words, the holding out as partner may be done by the person himself, or by his consent or with his knowledge. To hold the party liable, the third person must prove such misrepresentation and that a bona fide reliance by him upon it cause him injury

When partnership liability results – if all the actual partners consented to the representation, then the liability of the person who represented himself to be a partner or who consented to such representation and the actual partners is considered

partnership liability. This is a case of partnership by estoppel (par. 1[1]). The person becomes an agent of the partnership and his act or obligation that of the partnership (par. 1[2])

JOINT VENTURE

Contracts; Joint Ventures; By the express terms of the Joint Venture Agreement (JVA), it appears that petitioner not only retained ownership of the property pending completion of the condominium project but had also bound itself to answer liabilities proceeding from contracts entered into by PPGI with third parties.—Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and Board correctly held petitioner liable alongside PPGI for respondents’ claims and the P10,000.00 administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express terms of the JVA, it appears that petitioner not only retained ownership of the property pending completion of the condominium project but had also bound itself to answer liabilities proceeding from contracts entered into by PPGI with third parties. [J. Tiosejo Investment Corp. vs. Ang, 630 SCRA 334(2010)]

KINDS OF PARTNERS

GENERAL v LIMITEDArt. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.

Concept of limited partnership • this article defines a limited partnership • the correct usage of the term confines it to the form of business association composed of one or more general partners and one or more special partners, the latter not being personally liable for the partnership debts

Characteristic of limited partnership • a limited partnership is formed by compliance with the statutory requirements • one or more general partners control the business and are personally liable to the creditors • one or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for partnership obligations beyond their capital contributions • the limited partners may ask for the return of their capital contributions under the conditions prescribed by law • the partnership debts are paid out of the common fund and the individual properties of the general partners

limited partnership is composed of 2 classes of partners: general and limited the liability of the limited partner is limited to the amount of money he has put into the partnership it is an exception to the general rule that all partners including the industrial partners are liable pro rata of all their property for partnership debts

Art. 1844. Two or more persons desiring to form a limited partnership shall:(1) Sign and swear to a certificate, which shall state - (a) The name of the partnership, adding thereto the word "Limited";(b) The character of the business;(c) The location of the principal place of business;(d) The name and place of residence of each member, general and limited partners being respectively designated;(e) The term for which the partnership is to exist;(f) The amount of cash and a description of and the agreed value of the other property contributed by each limited partner;(g) The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made;(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;(i) The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution;(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution;(k) The right, if given, of the partners to admit additional limited partners;(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority;(m) The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and(n) The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.(2) File for record the certificate in the Office of the Securities and Exchange Commission.A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.

Limited partnership not created by mere voluntary agreement • the creation of a limited partnership is a formal proceeding and is not a mere voluntary agreement as in the case of a general partnership • requirements given by statute must be followed so that public notice may be given to all who desire to know the essential features of the partnership • a limited partnership is formed if there is substantial compliance in good faith with the requirements set forth in the last paragraph of Art. 1844; otherwise, the partnership becomes a general partnership in which case all the members become liable as general partners

Requirements for formation of a limited partnership • a limited partnership cannot be constituted orally • 2 essential requirements for the formation of a limited partnership

o Certificate of articles of the limited partnership which states the matters enumerated in the articles must be signed and sworn to o Such certificate must be filed on record in the office of the SEC

• The purpose of the of the filing of the certificate is to give an actual and constructive notice to potential creditors and persons dealing with the partnership of the limited liability of the limited partners

OSTENSIBLE, NOMINAL, and DORMANT

Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:(1) Unknown as a partner to the person with whom the contract is made; and

(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it.

The partnership is in no case bound by any act of a partner after dissolution:(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or(2) Where the partner has become insolvent; or(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who:(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying business. (n)

MANAGING PARTNERArt. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.A power granted after the partnership has been constituted may be revoked at any time. (1692a)

Two distinct cases of appointments • Appointment as a manager in the Articles of Partnership

o Partner appointed by common agreement in articles of partnership may execute all acts of administration, but not those of strict ownership, notwithstanding the opposition of the other partners, unless he should act in bad faith o His power is revocable only upon just and lawful cause and upon vote of the partners representing the controlling interest o Reason: revocation represents a change in the terms of the contract o In case of mismanagement, other partners may avail of usual remedies, including application for dissolution of partnership by judicial decree

• Appointment as manager after the constitution of the partnership o Management granted after partnership has been constituted independently of the articles may be revoked at any time for any cause whatsoever o Revocation not founded on change of will of partners, the appointment not being a condition of the contract o It is merely a contract of agency, which may be revoked any time

Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;(2) Dispose of the good-will of the business;(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;(4) Confess a judgment;(5) Enter into a compromise concerning a partnership claim or liability;(6) Submit a partnership claim or liability to arbitration;(7) Renounce a claim of the partnership.No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (n)

LIQUIDATING PARTNER Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. (n)

Manner of liquidation • Judicial – the court has control and direction of liquidation • Extrajudicial – the liquidation is done by the partners without the intervention of the court

Nature of action • An action for the liquidation is a personal action

Persons authorized to liquidate • The partner designated by agreement • In the absence of agreement, all partners who have not wrongfully dissolved the partnership • The legal representative of the last surviving spouse when all the partners are already dead

o The duty of liquidating its affairs devolves upon the surviving member or his legal representative

Powers of liquidating partner • Enter into new contracts as regard liquidation affairs

Raise money to pay off debts • Incur obligations to complete existing contracts or preserve the partnership assets • Incur expenses necessary in the conduct of litigation

CONTINUING PARTNERSArt. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs.The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud.The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n)

SURVIVING PARTNERSArt. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. (n) OBLIGATIONS OF PARTNERS AMONG THEMSELVES

PROMISED CONTRIBUTION Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to

the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)

Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)

Appraisal of goods or property contributed • Necessary to determine how much has been contributed by the partners • Two ways of appraisal: in the manner prescribed by the contract of partnership and in the absence of stipulation, by experts chosen by the partners and according to current prices • For immovable property: appraisal is made in the inventory of said property

Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.

Obligations with respect to contribution of money & money converted to personal use • 2 instances involved: money promised but not given on time and partnership money converted to personal use of the partner • Obligations of the partner under this article

o Contribute on the date due the amounts he has undertaken to the partnership to contribute Liability of guilty partner for interest and damages: from the time he should have complied (not from judicial or extrajudicial demand)

Reimburse any amount he may have taken The party is guilty of estafa if he misappropriates partnership money or property Mere failure on the part of the industrial partner to return to the capitalist partner the capital brought by him does not constitute estafa

o Pay the agreed or legal interest if he fails to pay his contribution on time o Indemnify the partnership for the damages caused to it by the delay

Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (n)

Obligations of industrial partner • Industrial partner contributes his industry, labor or services to the partnership

o Considered as the owner of his services o Becomes a debtor of the partnership for his partnership acquires exclusive right to avail itself of his industry o Action for specific performance is not the proper action

• Prohibition against engaging in business o Absolute and applies whether the industrial partner is to engage in the same business or in any kind of business

• Remedies where the industrial partner engages in business o Capitalist partners have the right to exclude him from the firm (with damages) o Or avail of the benefits (with damages)

• It is believed that industrial partners are also entitled to the remedy Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (1687)Risk of loss of things contributed: FIVE cases for the determination of the risk of the things contributed to the partnership • Specific and determinate things which are not fungible where only the use is contributed – risk of loss borne by the partner because he remains the owner • Specific and determinate things the ownership of which is transferred to the partnership – risk of loss is for the account of the partnership, as owner • Fungible things which cannot be kept without deteriorating even if they are contributed only for the use of the partnership – risk of loss is borne by the partnership

Things contributed to be sold – partnership bears risk of loss for there cannot be any doubt that the partnership was intended to be the owner • Things brought and appraised in the inventory – partnership bears risk of loss because the intention of the parties was to contribute to the partnership the price of the things contributed with an appraisal (implied sale making the partnership owner of the said things, the price being represented by their appraised value)

Art. 1811. A partner is co-owner with his partners of specific partnership property.The incidents of this co-ownership are such that:(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;(2) A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property;(3) A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws;(4) A partner's right in specific partnership property is not subject to legal support under Article 291. (n)

The incidents of this co-ownership are such that: • A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners • A partner s right in specific partnership property is not assignable except in connection with the assignment of rights of all ‟the partners in the same property • A partner s right in specific partnership property is not subject to attachment or execution, except on a claim against the ‟partnership. When partnership property is attached for a partnership debt, the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws • A partner s right in specific partnership property is not subject to legal support under Art. 291 ‟

Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled:(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him;(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n)

Rights of a partner to rescind contract of partnership • If one is induced by fraud or misrepresentation to become a partner, the contract is voidable or annullable • If the contract is annulled, the injured partner is entitled to restitution

Right of the injured partner where partnership contract is rescinded • This article speaks of the rights of the injured partner where the partnership contract is rescinded on the ground of fraud or misrepresentation • The rights are as follows

o Right on a lien on or retention of the surplus of the partnership property after satisfying partnership liabilities for any sum of money paid or contributed by him o Right to subrogation in place of partnership creditors after payment of partnership liabilities o Right to indemnification by the guilty partner against all debts and liabilities of the partnership

ADDITIONAL CAPITALArt. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. (n)

Obligation of capitalist partner to contribute additional capital • General rule: capitalist is not bound to contribute to the partnership more than what he agreed to contribute, but in case of imminent loss, he is under obligation to contribute additional share to save the venture • Refusal to contribute means he is obliged to sell his interest to the other partners • Requisites before a capitalist partner may be obliged to sell his interest

o Imminent loss of the business o Majority of the capitalist partners believe that an additional contribution to the common fund would save the business o Capitalist partner refuses deliberately o No agreement that the partners are not obliged to contribute in case of an imminent loss

• Reason: refusal of the partner shows his lack of interest in the continuance of the partnership

FIDUCIARY DUTYArt. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry.

However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized. (1686a)

Obligation of partner for damages to partnership • Any person guilty of negligence or fraud shall be liable for damages

o The partner s fault is determined in accordance with the nature of the obligation and the circumstance of the person, ‟time and place

• Damages caused by a partner cannot be offset by the profits he may have earned for the partnership by his industry o The partner has the obligation to secure benefits for the partnership o The partner also has the obligation to exercise diligence in the performance of his obligation as a partner o Exception: unusual profits through extraordinary efforts

Based on equity Case to case basis

Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. (n)

Duties: • Duty to act for common benefit – he cannot, at the expense or detriment of the other partners, use or apply exclusively to his own individual benefit partnership assets or knowledge or information gained as a partner • Duty begins during formation of partnership

o The principle of utmost good faith starts even in negotiations leading to formation of the partnership (Allen v. Steinberg) o Has the obligation to account for commissions and discounts received in acquiring property for the future

partnership • Duty continues even after dissolution of partnership – duty to act with utmost good faith continues throughout life of partnership until relationship is terminated (includes winding up) • Duty to account for secret and similar profit – duty to account as a fiduciary operates to prevent from making a secret profit out of the operation of the partnership and using the partnership or knowledge obtained from the partnership in a similar business without the consent of the other partners • Duty to account for earnings accruing even after termination of partnership – “if a member of a partnership avails himself of information obtained by him in the course of the transaction of partnership business which is within scope of the firm s ‟

business, and applies it to his own account without the consent or knowledge of his co-partners, he is liable to account to the partnership for any benefit he may obtain from the use of such information

Duty to make full disclosure of information belonging to a partnership o Partner must give undivided loyalty and complete disclosure of information of all things affecting the partnership o Information means information that can be used for the purposes of the partnership

• Duty not to acquire interest or right adverse to partnership o Partner may not purchase, lease, or secure a valuable contract, for his own benefit, that which the partnership is interested o If he does, he hold it in trust for the benefit of the partnership and must account to the firm the profits of the transaction unless there is consent from the co-partners o Consent must be an “informed consent” with knowledge of the facts necessary to give an intelligent consent

Art. 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. (n) Industrial partner – absolute prohibition Capitalist partner – relative prohibition • Only prohibited from engaging for his own account in any operation which is the same or similar to the business of the partnership or competes with such • If capitalist partner seeks to do other businesses it must be one that is not connected or competing with partnership • Cannot engage in business of others in the same line of business as partnership

Reason: partnership is fiduciary Exception: consent from partners

PROPERTY RIGHTS OF A PARTNERArt. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. (n)

Keeping a partnership books Partner with duty to keep partnership books – Managing or Active partner has duty to keep books and make them available at all times for inspection by members of the firm Rights with respect to partnership books

• Books should be kept at principal place of business • To ensure other partner s right to free access to them and to inspect or copy any of them at any reasonable time, even after ‟dissolution • Partnership inspection rights are not absolute. He can be restrained from using information gathered for other than partnership purposes

Access to partnership books – reasonable hours on business days throughout the year and not merely during some arbitrary period of a few days by the managing partners

Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. (n)

Duty to render information • There must be no concealment between the partners in all matters affecting the partnership • The information that shall be rendered on demand should be used only for a partnership purpose • Partner has either 2 obligations

o Give information on demand o Duty of voluntary disclosure of material facts within his knowledge relating to partnership affairs

But duty to render information does not apply to matters appearing in partnership books since partners have right to inspect books • Good faith requires partner not make any false statement and abstain from any false concealment

Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;(2) If the right exists under the terms of any agreement;(3) As provided by article 1807;(4) Whenever other circumstances render it just and reasonable. (n)

General rule: during the existence of the partnership, a partner is not entitled to a formal account of partnership affairs Reason: rights of a partner protected in Art. 1805 and 1806 and will cause much inconvenience and unnecessary waste of time Exception: special and unusual situations under Art. 1809 Example of paragraph 4: partner is assigned abroad for a long period for the partnership and the other partners hold books during that time Prescriptive period: right to demand accounting exists as long as partnership lasts. Prescription starts upon dissolution of partnership when final accounting is done

Art. 1810. The property rights of a partner are:(1) His rights in specific partnership property;(2) His interest in the partnership; and(3) His right to participate in the management. (n) Ownership of certain property Key: depends on intention of the parties – controlling factor: • No express agreement that property used by a partnership constitutes partnership property does not make it partnership property. Depends on intention of the parties (shown by express agreements or acts of particular conduct) • A partner may contribute the use or enjoyment of property to the partnership while retaining ownership of property • A partner may hold title to partnership property without it actually belonging to him

General rule: property acquired with partnership funds is partnership property Exception: unless there is a contrary intention Property acquired after dissolution but before winding up is separate property; BUT he would be liable to the partnership of partnership funds are used

INTEREST IN PARTNERSHIPArt. 1812. A partner's interest in the partnership is his share of the profits and surplus. (n)

The partner s interest in the partnership consists of his share in the undistributed profits during the life of the partnership as ‟an ongoing concern and his share in the undistributed surplus after its dissolution Profit – excess of returns over expenditure in a transaction of series of transactions or the net income of the partnership over a given period Surplus – assets of the partnership after debts and liabilities are paid and the rights of the partnership are adjusted. Excess assets over liabilities Extent of partner s interest is the proportion residue or balance after an account has been taken of debts and credits, ‟including the amount paid by the several partners in liquidating firm debts or in making advances to the partnership. Until that occurs, it is impossible to determine the extent of a partner s interest A partner is not a creditor of the partnership for the‟ amount of his share. The interest of a partner is not subject to attachment or execution on a judgment recovered against the individual partner

ASSIGNMENT OF PARTNERSHIP INTERESTArt. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but

it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. (n)

A partner s right in specific partnership property is not assignable (Art. 1811[2]), but he may assign his interest in the ‟partnership (Art. 1812) to any of his co-partners or to a third person irrespective of the consent of the other partners, in the absence of agreement to the contrary Partner may convey his whole interest in the partnership without causing dissolution.

However, his assignment does not grant assignee right to: • to interfere with the management • to require any information or account • to inspect any of the partnership books

Partnership is a relation in which delectus personae is an important element. No one may be introduced into the firm as a partner without the unanimous consent of the other partners Remedy of the other partners if: • dissolution of the partnership is NOT intended

o partnership may continue. Assigning partner still has to participate in his partnership duties. Dissolution may occur if assigning partner neglects his partnership duties • dissolution of the partnership is intended

o operates as a dissolution of the partnership only when it is clear that the parties contemplated and intended the entire withdrawal from the partnership of such partners and the termination of the partnership as between the parties

The rights of the transferee or assignee are as follows: • to receive in accordance with his contract the profits accruing to the assigning partner • to avail himself of the usual remedies provided by law in the event of fraud in the management • to receive the assignor s interest in case of dissolution ‟• to require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all the partners

CHARGING ORDERArt. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution:(1) With separate property, by any one or more of the partners; or(2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n)

A separate creditor of a partner cannot attach or levy upon partnership property for the satisfaction of his credit (Art. 1811[3]) • because partnership assets are reserved for partnership creditors (Art. 1827). However, he can secure a judgment on his credit and then apply to the proper court for a “Charging Order” subject the interest of the debtor partner in the partnership (Art. 1812) with the payment of the unsatisfied amount of such judgment with interest thereon with the least interference with the partnership business and the rights of other partners. Through the “Charging Order”, any amount or portion which would be paid to the debtor partner should instead be given to the judgment creditor • interest of the debtor partner may be redeemed or purchased with the separate property of any one or more of the partners, or with the partnership property but with the consent of all the partners whose interests are not so charged or sold • redemption price should be equal to the actual or market value. Value of partner s interest has no bearing on the ‟redemption price which would likely be lower since it will be dependent on the amount of the partnership debts • if another partner redeems the partner s interest, he does not acquire absolute ownership but holds it in trust for the ‟debtor-partner due to the fiduciary relationship

PARTICIPATION IN MANAGEMENTArt. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable

without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.A power granted after the partnership has been constituted may be revoked at any time. (1692a)Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a)Art. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. (1694)Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801.(2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a)

OBLIGATIONS TO THIRD PERSONS

FIRM NAME

Civil Law; Partnership; Firm Name; Use in the partnership name of the names of deceased partners contrary to Art. 1815 of the Civil Code; Names in a firm name of a partnership must be living partners; Reasons.—Inasmuch as “Sycip, Salazar, Feliciano, Hernandez and Castillo” and “Ozaeta, Romulo, De Leon, Mabanta and Reyes” are partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code. x x x It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and, in the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics “prohibits an agreement for the payment to the widow and heirs of a deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the deceased lawyer’s clients, both because

the recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the recipient.” Accordingly, neither the widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-predecessor. There being no benefits accruing, there can be no corresponding liability. [In the Matter of the Petition for Authority To Continue use of the Firm name “Ozaeta, Romulo, etc., 92 SCRA 1(1979)]

MUTUAL AGENCY

Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners' act does not bind the partnership under the provisions of the first paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property. (n)

Legal effects of the conveyance of real property belonging to the partnership Depending: • In whose name it is registered; and • In whose name it is conveyed

Under this article, the real property may be registered or owned in the name of: • The partnership (pars. 1 and 2); • One of more but not all the partners (par. 3);

• One or more or all the partners, or in a third person in trust for the partnership (par. 4.); or • All the partners (par. 5)

Under paragraphs 1, 3, and 5, what is conveyed is title or ownership, while under paragraphs 2 and 4, what is conveyed is merely equitable interest

ADMISSIONS OR REPRESENTATIONS Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership. (n)

Effect of admission by a partner • The admission of a partner made during the existence of the partnership are binding against the partnership (and co-partners) when such admissions refer to a matter concerning partnership affairs made within the scope of his authority

Whether an admission of liability made by a partner binds the partnership depends on whether the partner was acting within the scope of express, implied, or apparent authority at the time of making the statements or declarations • A partner cannot by his declaration alone bring a transaction within the scope of the business when the facts show that it has no connection with partnership business • Statements of a partner bind the partnership only if they are made in the course of, related to, and are material to, the transaction of the partnership s business. A partnership is a joint affair, and to charge it with liability there must be joint ‟words or actions. An individual partner cannot do this

NOTICE OR KNOWLEDGEArt. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner. (n)

Notice to, or knowledge of, a partner of matter affecting partnership affairs • Notice to, or knowledge of, any partner of any matter relating to the partnership affairs operate as a notice to or knowledge of the partnership except in case of fraud

o A third person desiring to give notice to a partnership of some matter pertaining to the partnership business need not communicate with all the partners. If notice is delivered to a partner, that is an effective communication to the partnership notwithstanding the failure of the partner to communicate such notice or knowledge to his co-partners

• Article 1821 speaks of three cases of knowledge namely: o Knowledge of the partner acting in the particular matter acquired while a partner; o Knowledge of the partner acting in the particular matter then present to his mind; and o Knowledge of any partner who reasonably could and should have communicated it to the acting partner

LIABILITY BY ESTOPPELArt. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)

Meaning and effect of estoppel • Estoppel is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or misrepresentation, either express or implied • Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disapproved as against the person relying thereon

When a person a partner by estoppel • Persons who are not partners as to each other are not partners as to third persons (Art. 1709[1]) • No one can be held liable nor claim rights as a partner unless he has given his consent to become such. An exception to this rule is provided by Art. 1825. due to the doctrine of estoppel, one may become liable as a partner even though he is not a partner in fact • A person not a partner may become a partner by estoppel and thus be held liable to third persons as if he were a partner, when by words or by conduct he:

o Directly represents to anyone as a partner in an existing partnership or in a non-existing partnership (with one or more persons not actually partners); or o Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in

a non-existing partnership • In other words, the holding out as partner may be done by the person himself, or by his consent or with his knowledge. To hold the party liable, the third person must prove such misrepresentation and that a bona fide reliance by him upon it cause him injury

When partnership liability results – if all the actual partners consented to the representation, then the liability of the person who represented himself to be a partner or who consented to such representation and the actual partners is considered partnership liability. This is a case of partnership by estoppel (par. 1[1]). The person becomes an agent of the partnership and his act or obligation that of the partnership (par. 1[2])When liability pro-rata – when there is no existing partnership and all those represented as partners consented to the representation or not all of the partners of an existing partnership consented to the representation, then the liability of the person who represented himself to be a partner or who consented to his being represented as partner, and all those who made and consented to such representation, is joint or pro rata liable When liability separate • When there is no existing partnership and not all but only some of those represented as partners consented to the representation, or none of the partners in an existing partnership consented to such representation, then the liability will be separate

o That of the person who represented himself as a partner or who consented to his being represented as partner, and those who made and consented to the representation, or that only of the person who represented himself as partner

Estoppel does not create partnership – it must be emphasized that Art. 1825 does not create a partnership as between alleged partners. A contract, express or implied, is essential to the formation of a partnership. The law considered them as partners and the association as a partnership only insofar as it is favourable to third persons by reason of the equitable principle of estoppel

DISSOLUTION

DEFINITIONArt. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (n)

Effects of change in membership of a partnership • Dissolution of existing partnership and formation of a new one – any change in the membership of a partnership produces, technically, an immediate dissolution of the existing partnership relation and the formation of a new one, although common business usage speaks of the admission of a partner to a firm and regards the firm as subsisting so long as the course of its business is not materially interrupted • Transformation of all partners into incoming partners – all persons forming the new partnership upon the admission of the new person into the business are “incoming partners” even though the same business had been conducted by the others through the medium of the partnership • Continuance by remaining partners of partnership as before – the change in the relation of the partners will dissolve the partnership but will not disturb the continuance by the remaining partners or by the existing and new partners of the business as before

Dissolution, winding up and termination • When a partnership ends, it involves 3 stages

o Dissolution – that point in time when the partners cease to carry on the business together. It represents the demise of a partnership o Winding up – process of settling the business or partnership affairs after dissolution

Termination – all partnership are completely wound up and finally settled. It signifies the end of the partnership life

CAUSES OF DISSOULUTIONArt. 1830. Dissolution is caused: (1) Without violation of the agreement between the partners:(a) By the termination of the definite term or particular undertaking specified in the agreement;(b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified;(c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking;(d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners;(2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership;(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;(5) By the death of any partner;(6) By the insolvency of any partner or of the partnership;(7) By the civil interdiction of any partner;(8) By decree of court under the following article. (1700a and 1701a)

Causes of dissolution • Statutory enumeration exclusive

o Art. 1830, 1831, and 1840 provide for causes of dissolution o Under Art. 1830, extrajudicial dissolution may be caused without violation of the agreement between the parties (no. 1) or in contravention of said agreement (no. 2). It may be voluntary when caused by the will of one or more or all of the parties (nos. 1 and 2) or involuntary when brought about independently of the will of the partners or by operation of law (nos. 3-8)

• Voluntary dissolution may be o Extrajudicial (nos. 1-7); or o Judicial (no. 8 in relation to Art. 1831)

o The causes provided for in Art. 1830 result in the automatic dissolution of the partnership

In Art. 1840, automatic dissolution takes place when a new partner is admitted or when a partner retires, withdraws, or is expelled from the partnership There is no automatic dissolution under Art. 1831. Art. 1831 enumerates the grounds for the judicial dissolution of the partnership

The statutory enumeration of the causes of dissolution precludes dissolution for any other causes • Effect of sale or assignment by one partner of his entire interest in the partnership to a third person

o The dissolution created in such case is only technical, and not actual, only in the sense that his connection with the partnership is terminated

Dissolution effected without violation of partnership agreement: Four ways by which a partnership may be dissolved without violation of the partnership agreement:

1. termination of the definite term or particular undertaking • after the expiration of the term or particular undertaking, the partnership is automatically dissolved without the partners extending the said term or continuing the undertaking. If after said expiration the partners continue the partnership without making a new agreement, the firm becomes a partnership at will

2. by the express will of any partner • a partnership at will may be dissolved at any time by any partner without the consent of his co-partners without breach of contract, provided, the said partner acts in good faith. If there is bad faith, the dissolution is wrongful • good faith will absolve the partner exercising the right to dissolve the partnership from liability for damages which result to his co-partners by reason of his action • for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly causing harm and damage upon the partnership, bad faith cannot be said to characterized the act • while bad faith cannot prevent the dissolution of a partnership, it can result in liability for damages

3. by the express will of all partner • may be accomplished either by an express agreement or by words and acts implying an intention to dissolve • must be unanimous

• the consent of the partners who have assigned their interests or suffered them to be charged for their separate debts is not required to effect dissolution without breach of the partnership agreement. They are not given the right to have a voice or vote in the dissolution of the partnership

4. by expulsion of any partner • must be made in good faith, and strictly in accordance with the power conferred by the agreement between the partners • the partner expelled in bad faith can claim damages Dissolution effected in contravention of partnership agreement • dissolution may be for any cause or reason o any partner may cause the dissolution at any time without the consent of his co-partners for any reason which he deems sufficient by expressly withdrawing therefrom even though the partnership was entered into for a definite term or particular undertaking. Such dissolution is a contravention of the agreement

A partner guilty of wrongful dissolution is not given the right to wind up partnership affairs • power of dissolution always exists o the right of a partner to dissolve is inseparably incident to every partnership and there can be no indissoluble partnership

Delectus personae – allows the partners to have the power, although not necessarily the right to dissolve the partnership An unjustified dissolution by a partner can subject him to a possible action for damages

Business becomes unlawful • dissolution may be caused involuntarily when a supervening event makes the business itself of the partnership unlawful of makes it unlawful for the partners to carry it on together

Loss of specific thing • loss before delivery – the partnership is dissolved because there is no contribution inasmuch as the thing to be contributed cannot be substituted with another • loss after delivery – the partnership assumes the mist of the thing having acquired ownership thereof. The partners may contribute additional capital to save the venture • loss where only use or enjoyment contributed – if only the use or enjoyment of the thing is contributed, its loss before or after delivery, dissolves the partnership because in either case, the partner cannot fulfil his undertaking

o the partner bears the loss

Death of any partner – because of the partner s death, there is dissolution o the partnership by operation of law ‟• status of partnership – the subsequent legal status is that of a partnership in liquidation, and the only rights inherited by the heirs are those resulting from the said liquidation • liquidation of its affairs – entrusted to the surviving partners or to liquidators appointed by them • continuation of business without liquidation – a clause in the article of co-partnership providing for the continuation of the firm notwithstanding the death of one of the partners is legal

Under the rules of the SEC, the heirs of a deceased partner may be admitted as partners when so authorized by the articles of partnership To reflect the substitution, the articles must be amended Insolvency of any partner or of the partnership • must be adjudged by a court • insolvency of partner – the insolvency of a partner subjects his interest in the partnership to the right of his creditors. Art. 1816 is also violated. Thus, by his insolvency, the partnership s credit is impaired ‟• insolvency of partnership – such renders the partnership s property in the hands of the partners liable for the satisfaction of ‟partnership obligations resulting in their inability to continue the business, which practically amounts to dissolution o reconveyance by the assignee of the properties of the partnership after the termination of insolvency proceedings has the effect of restoring the partnership to its status quo

Civil interdiction of any partner • civil interdiction deprives the offender during the time of his sentence of the right to manage his property and dispose of such property • one who is without capacity to manage his own property should not be allowed to manage partnership property

Right to expel a partner – in the absence of an express agreement to that effect, there exists NO right or power of any member, or even the majority of the members, to expel all other members of the firm at will. Nor can they at will forfeit the share or interest of a member or members and compel him/ her to quit

Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;(2) A partner becomes in any other way incapable of performing his part of the partnership contract;(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

(5) The business of the partnership can only be carried on at a loss;(6) Other circumstances render a dissolution equitable.On the application of the purchaser of a partner's interest under Article 1813 or 1814:(1) After the termination of the specified term or particular undertaking;(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n)

On application by a partner • insanity

o an insane person is incapacitated to enter into a contract. The insanity must materially affect the capacity of the partner to perform his contractual duties as a partner

• incapacity o courts have the power to decree dissolution of the partnership because of incapacity of a partner which materially

affects his ability to discharge the duties imposed by his partnership contract o the incapacity must be lasting from which the prospect of recovery is remote since every partnership must be

presumed to be entered into, subject to the common incidents of life such as temporary illness, infirmity or insanity • misconduct and persistent breach of partnership agreement

o such acts defeat and materially affect and obstruct the purpose of the partnership o where the quarrels and disagreements are of such a nature and to such extent that all confidence and cooperation between the parties have been destroyed, or where one of the parties, by his misbehaviour, materially hinders a proper conduct of the partnership business

• business can be carried on only at a loss o the partnership may be dissolved by decree of court when it becomes apparent that it is unprofitable with no reasonable prospects of success o where a partnership has lost all its capital, or had become insolvent, or that the enterprise for which it had been organized had been concluded or utterly abandoned, a provision in the articles of partnership prohibiting the dissolution of the partnership except by the consent and agreement of 2/3 of its partners, can in no wise limit or restrict the right of a less number of the partners to affect the dissolution through judicial intervention or otherwise

• other circumstances o examples are abandonment of the business, fraud in the management of the business, refusal without justifiable cause to render accounting of partnership affairs, etc.

EFFECTS OF DISSOLUTIONArt. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership:(1) With respect to the partners:(a) When the dissolution is not by the act, insolvency or death of a partner; or(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;(2) With respect to persons not partners, as declared in article 1834. (n)

Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.

Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:(1) Unknown as a partner to the person with whom the contract is made; and(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it.The partnership is in no case bound by any act of a partner after dissolution:

(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or(2) Where the partner has become insolvent; or(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who:(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying business. (n)

RIGHTS OR PARTNERS UPON DISSOLUTIONArt. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. (n)

Art. 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership.When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:(1) Each partner who has not caused dissolution wrongfully shall have: (a) All the rights specified in the first paragraph of this article, and(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities.(3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article.(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. (n)

Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled:(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him;(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n)

WINDING UP AND LIQUIDATIONArt. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary:(1) The assets of the partnership are: (a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.(2) The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners,(b) Those owing to partners other than for capital and profits,(c) Those owing to partners in respect of capital,(d) Those owing to partners in respect of profits.(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number.(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability.(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.(8) When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors.(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (a) Those owing to separate creditors;(b) Those owing to partnership creditors;(c) Those owing to partners by way of contribution. (n)

RIGHT OF EXPELLED PARTNER Art. 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership.

When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:(1) Each partner who has not caused dissolution wrongfully shall have: (a) All the rights specified in the first paragraph of this article, and(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement.(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities.(3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article.(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered. (n)

LIMITED PARTNERSHIP

CHARACTERISTICS Art. 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to:(1) Do any act in contravention of the certificate;(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;(3) Confess a judgment against the partnership;

(4) Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose;(5) Admit a person as a general partner;(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the certificate.

Art. 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners.

Art. 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until:(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them;(2) The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and(3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:(1) On the dissolution of a partnership; or(2) When the date specified in the certificate for its return has arrived, or(3) After he has six months' notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership.In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution.A limited partner may have the partnership dissolved and its affairs wound up when:(1) He rightfully but unsuccessfully demands the return of his contribution, or(2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution.

RIGHTS Art. 1851. A limited partner shall have the same rights as a general partner to:(1) Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them;(2) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and(3) Have dissolution and winding up by decree of court.

Rights of a limited partner • Improper on the part of general partners may not give a limited partner greater rights than the law what his contract grants him • Specific rights

o To require the partnership books be kept at the principal place of business o Inspect and copy at a reasonable hour partnership books o Demand a formal account o Ask for dissolution and winding up by decree of court o Receive a share of the profits

A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Articles 1856 and 1857.

Art. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.

Status of partner where there is failure to create limited partnership • This article grants exemption from liability in favour of one who has contributed to the capital of a business, with the mistaken belief that there is only a limited partnership • Sometimes the limited partnership exists in spite of the failure of the firm to comply with the law • Limited partner is merely made liable for the debts of the firm as if he were a general partner

• Status of person erroneously believing himself to be a limited partner o If the person has contributed capital, he is not personally liable as a general partner

On ascertaining the mistake, he renounces his interest in the profits His surname does not appear in the partnership name He does not participate in the management of the business

o Necessity of renouncing his interest Renunciation before the partner-ship has become liable to 3rd persons

o Obligation to pay back profits and compensation already received Renunciation should be on the profits or compensation not yet paid for • Status of heirs of a deceased partner

o Right to elect to become general partner may be exercised The heirs may disregard the limitation and elect to become a collective or general partner (choice is personal)

o Right when given in articles of partnership may be waived Heirs cannot be compelled to become general partners against their wishes

Art. 1853. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in Article 1844.A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner.

One person as general and limited partner • Such fact must be stated in the certificate

o Rights and powers are those of a general partner o With respect to his contribution as limited partner, he is a limited partner insofar as other partners are concerned

• While he is not relieved from personal liability to 3rd persons for partnership debts, he is entitled to recover from the general partners in the amount he has paid to such 3rd persons • In settling accounts after dissolution, he has priority over general partners in the return of their respective contributions

Art. 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim:

(1) Receive or hold as collateral security and partnership property, or(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.

The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.Loan and other business transactions with limited partnership • Allowable transactions

o Granting loans to the partnership o Transacting other business o Receiving a pro rata share of the partnership assets with general creditors

• Prohibited transactions o Receiving or holding as collateral security any partnership property o Receiving any payment, conveyance or release from liability if it will prejudice the right of third persons

Any violation will give rise to the presumption that it has been to defraud partnership creditors • Preferential rights of 3rd persons

o Designed to prevent illegal competition between the limited partner and creditors of the partnership for the assets of the partnership in case there is insufficiency of partnership assets

Art. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.

Preferred limited partners • Priority over other limited partners as to the following:

o Return of their contributions o Compensation by way of income o Any other matter

• In the absence of any agreement, all the limited partners shall stand on equal footing

CANCELLATION AND AMENDMENT OF CERTIFICATEArt. 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.A certificate shall be amended when:(1) There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner;(2) A person is substituted as a limited partner;(3) An additional limited partner is admitted;(4) A person is admitted as a general partner;(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under Article 1860;(6) There is a change in the character of the business of the partnership;(7) There is a false or erroneous statement in the certificate;(8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution;(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or(10) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.Art. 1865. The writing to amend a certificate shall:(1) Conform to the requirements of Article 1844 as far as necessary to set forth clearly the change in the certificate which it is desired to make; and(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.The writing to cancel a certificate shall be signed by all members.A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded:(1) A writing in accordance with the provisions of the first or second paragraph, or(2) A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;(3) After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.

DISSOLUTIONArt. 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners:(1) Under a right so to do stated in the certificate, or(2) With the consent of all members.

Effect of retirement, death, etc. of a general partner • Dissolution of partnership. If limited partner, does not dissolve partnership unless he is the only limited partner • If the business is continued by the remaining partners under the rights given in the certificate or with the consent of all members, no dissolution but the certificate must be amended for limited partners to still avail of limited liability

Art. 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.

Right of executor on death of a limited partner • All the rights for purposes of settling the affairs of the limited partner; and • The right to constitute the deceased s assignee as substituted limited partner (if deceased was empowered to so assign ‟under the certificate)

Art. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require.

The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.

Rights of creditors of limited partner • Apply to court for charging order on limited partner s interest in the partnership ‟

Art. 1863. In setting accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners;(2) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;(3) Those to limited partners in respect to the capital of their contributions;(4) Those to general partners other than for capital and profits;(5) Those to general partners in respect to profits;(6) Those to general partners in respect to capital.Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims.

Dissolution of a limited partnership • Causes

o Misconduct of a general partner o Fraud practiced on the limited partner by the general partner o Retirement, death, etc. of a general partner o When all the limited partners ceased to be such o Expiration of the term for which partnership was to exist o Mutual consent of the partners before the expiration of the firm s original term ‟

• Suit for dissolution o A limited partner may bring a suit for the dissolution of the firm, an accounting, and the appointment of a receiver when the misconduct of a general partner or the insolvency of the firm warrants it. Similarly, creditors of a limited partnership are entitled to such relief where the firm is insolvent o A limited partner may have the partnership dissolved and its affairs wound up when he rightfully but unsuccessfully demands the return of his contribution, or the other liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have not been paid, or the partnership property is insufficient for their payment, and the limited partner would otherwise be entitled to the return of his contribution

• Notice of dissolution o When the firm is dissolved by the expiration of the term fixed in the certificate, notice of the dissolution need not be given since the papers filed and recorded in the SEC are notice to all the world of the term of the partnership. Where, however, the dissolution is by the express will of the partners, the certificate shall be cancelled, and a dissolution of the partnership is not effected until there has been compliance with the requirements in this respect

• Winding up o When a limited partnership has been duly dissolved, the general partners have the right and power to wind up its affairs. It is not the duty of the limited partner or of the representatives of a limited partner to care for or collect the assets of the firm Priority in the distribution of partnership assets

• The partnership liabilities shall be settled in the following order: o Those due to creditors, including limited partners, except those on account of their contributions, in the order of the priority as provided by law; o Those due to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; o Those due to limited partners for the return of the capital contributed; o Those due to general partners other than that for capital and profits; o Those due to general partners in respect to profits; o Those due to general partners for the return of the capital contributed

• Partnership creditors are entitled to foist distribution, followed by limited partners who take priority over general partners • Note that in general partnership, the claims of the general partners in respect of capital enjoy preference over those in respect of profits

Shares of limited partners in partnership assets • In the absence of any statement in the certificate as to the share of the profits which each partner shall receive by reason of his contribution and subject to any subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital and profits in proportion to the respective amounts of such claims • This proportional sharing by the limited partners takes place where the partnership assets are insufficient to pay such claims

Priority of claims of limited partners • The members of a limited partnership, as among themselves, may include in the partnership articles an agreement for priority of distribution on the winding up of partnership affairs. Such agreement ordinarily becomes controlling as between the partners themselves. In the absence of any contrary agreement, all the limited partners stand upon equal footing • The claims of limited partners for profits and other compensation by way of income and return of capital contributions rate ahead with respect to all claims of general partners. For claims arising from individual loans to, or other business transactions with, the partnership, other than for capital contributions, the limited partner is placed in the same category as a non-member creditor. If return is made to a limited partner of his contribution before creditors are paid, he is under an obligation to reimburse such payments, with interest, so far as necessary to satisfy claims of creditors • In the event of insolvency of the partnership, its creditor takes preference over both general and limited partners